Entry by takeover: Auctions vs. bilateral negotiations

Pagnozzi, M; Rosato, A

Entry by takeover: Auctions vs. bilateral negotiations

Pagnozzi, M Rosato, A

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Publication Type:: Journal Article
Citation:: International Journal of Industrial Organization, 2016, 44 pp. 68 - 84
Issue Date:: 2016-01-01

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Field	Value	Language
dc.contributor.author	Pagnozzi, M	en_US
dc.contributor.author	Rosato, A https://orcid.org/0000-0003-1789-0225	en_US
dc.date.issued	2016-01-01	en_US
dc.identifier.citation	International Journal of Industrial Organization, 2016, 44 pp. 68 - 84	en_US
dc.identifier.issn	0167-7187	en_US
dc.identifier.uri	http://hdl.handle.net/10453/37912
dc.description.abstract	© 2015 Elsevier B.V. Firms often enter new markets by taking over an incumbent. We analyze a potential entrant's choice of target under two (exogenously given) takeover mechanisms: (i) auctions, where other incumbents can bid for the target against the entrant, and (ii) bilateral negotiations between the entrant and the target. The entrant's choice of target depends on the mechanism, and it may not maximize its ex-post profit (nor consumer welfare). In an auction, the entrant pays a higher price to take over a target with higher synergies, because these impose stronger negative externalities on incumbents and increase their willingness to pay for preventing entry. Auctions increase the price obtained by the target, but reduce welfare compared to negotiations because they may discourage the entrant from acquiring a target with higher synergies.	en_US
dc.relation.ispartof	International Journal of Industrial Organization	en_US
dc.relation.isbasedon	10.1016/j.ijindorg.2015.10.009	en_US
dc.subject.classification	Economics	en_US
dc.title	Entry by takeover: Auctions vs. bilateral negotiations	en_US
dc.type	Journal Article
utslib.citation.volume	44	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	44	en_US

Abstract:

© 2015 Elsevier B.V. Firms often enter new markets by taking over an incumbent. We analyze a potential entrant's choice of target under two (exogenously given) takeover mechanisms: (i) auctions, where other incumbents can bid for the target against the entrant, and (ii) bilateral negotiations between the entrant and the target. The entrant's choice of target depends on the mechanism, and it may not maximize its ex-post profit (nor consumer welfare). In an auction, the entrant pays a higher price to take over a target with higher synergies, because these impose stronger negative externalities on incumbents and increase their willingness to pay for preventing entry. Auctions increase the price obtained by the target, but reduce welfare compared to negotiations because they may discourage the entrant from acquiring a target with higher synergies.

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http://hdl.handle.net/10453/37912